The world of stock trading is an exciting place with lots of opportunities to make good returns on investments. However, as with anywhere there are large sums of money involved, there are scammers lurking in the shadows of the stock market.
Whether you’re just getting into stock trading or you’ve been at it for a while, it’s important to know how to recognize and avoid some of the most common stock market scams out there.
Top Stock Trading Scams and How To Avoid Them
Boiler Room Trading Scams
In boiler room investment scams, the scammers cold call potential investors and push them to buy very speculative or even completely fraudulent financial stocks, which typically result in big losses for the investor.
The scammers operate high-volume call centers (which is where the name “boiler room” comes from) and use high-pressure sales tactics to get naive investors to buy stocks without doing any research about them.
How To Avoid Boiler Room Stock Trading Scams
Never buy stocks that someone is trying to sell you out of the blue. All your stock investment decisions should be made after considerable independent research or with the help of a reputable, authentic investment advisor.
Churning Investment Scams
Fraudulent stock brokers employ a strategy called churning to illegitimately generate large sums of brokerage fees. They do this by giving incorrect advice to investors, thus pushing them to sell off big investments just to earn the associated fees.
How To Avoid Churning Trading Scams
Only work with reputable stock brokers with a proven track record of making their clients money. Ideally, you should get referrals for any stock broker you’re considering hiring, or do plenty of online research to ensure their authenticity and capability.
Pump and Dump (Penny Stock Scam)
In pump and dump penny stock scams, fraudsters falsely inflate stock prices by issuing fake or exaggerated statements about the company’s success. Once they sufficiently boost the stock prices, they sell off all their stocks in the company at a profit. Other investors like you get left in the dust when the scammers stop hyping the stock and sell off their shares.
How To Avoid Pump and Dump Trading Scams
Be very careful about investing in penny stocks (stocks valued at less than a dollar) and try to verify any information about the companies via multiple sources.
Pump and dump scammers also often try to get people to buy penny stocks using boiler room investment scam tactics, so don’t invest in anything that is marketed to you via the internet or telemarketing.
Chop Stocks Scams (Penny Stock Scam)
In chop stock trading scams, fraudulent brokers work with scammers to unload large sums of penny stocks on unsuspecting investors, thus earning both the original owners and the brokers money at the new investors’ expense.
The original stock owners often pay the scam brokers additional fees under the table for pushing their stocks to their clients.
How To Avoid Chop Stocks Scams
Be wary of any brokers trying hard to push you to buy a particular penny stock. Unregistered brokers are also much more likely to be involved in investment scams, so it’s best to work with registered, reputable stock brokers.
Dump and Dilute Scams (Penny Stock Scam)
In dump and dilute trading scams, companies continuously issue more and more stocks, with the sole purpose of receiving more money from investors.
Periodically, they dilute the number of stocks by reverse splitting them, which makes it look like your investment has a higher value.
How To Avoid Dump and Dilute Scams
Don’t invest in companies that repeatedly issue large numbers of stocks. If you notice suspicious behavior by a company you’ve invested in, sell off your stocks or at least don’t buy any more when they issue new stocks.
Stock Trading Academy Scam
In this stock trading scam, fake “trading experts” try to get you to sign up for a paid academy that will allegedly teach you how to make tons of money in the stock market. However, they are not really who they say they are and their promises are too good to be true.
How To Avoid a Stock Trading Academy Scam
Don’t sign up for any stock trading academy unless it comes highly recommended by someone you trust, or has been reviewed well on reputable stock market advice sites. Also, if what an academy promises sounds too good to be true, it probably is.
You should even be wary of friends or family members pushing you to sign up for a stock trading academy program they are a part of, as many of these scams operate like pyramid schemes.
How a Chargeback Can Help You Recover From a Stock Trading Scam
If you know what to look out for in terms of stock trading scams, investing in stocks can be a perfectly safe and very lucrative investment option.
But, if you do ever fall victim to any of the stock market scams listed above, or any type of investment scam for that matter, you might still be able to get your money back.
The first thing you should try is a chargeback. A chargeback involves explaining your situation to your credit card issuer and requesting that they negate any charges for stock purchases which you were scammed on.
The process for chargebacks varies depending on your financial institution, but you can generally find all the information you need on your credit card issuer’s website or by calling the card services number on the back of your card.
Make sure to gather all the evidence you have of the stock trading scam, including things like emails and instant messages with the fraudulent brokers or other scammers. Your card issuer will ask you to send them all the evidence you have to help them review your case and reach a verdict.
The process for getting a chargeback can take anywhere from a few weeks to a few months, and success isn’t always guaranteed. However, you can increase your probabilities of a favorable outcome by hiring a fund recovery specialist company.
Fund recovery companies specialize in getting chargebacks approved for their clients, and know how to present your case and the evidence to your financial institution in the best way.
Whether you’ve fallen victim to a penny stock scam, a boiler room scam, or any other stock trading scam, a fund recovery chargeback specialist can boost your odds of getting your money back.